Inherited Roth IRA Tax Free 5 year rule
Does the 5 year clock start from the first IRA conversion the original owner made, or does each converted IRA start its own clock?
Does the 5 year clock start from the first IRA conversion the original owner made, or does each converted IRA start its own clock?
Permalink Submitted by Alan - IRA critic on Tue, 2017-10-31 20:24
The inherited Roth becomes qualified at the end of the 5 th year starting with the year that the Roth owner made their first contribution whether it was a regular contribution or a conversion. It does not matter how many Roth IRAs the owner had or which one the beneficiary inherited. Until that 5 year period ends, any Roth distributions including RMDs come out under the Roth IRA ordering rules, with earnings coming out last. That means the Roth RMDs will usually be tax free because the 5 year period will have been reached well before any earnings are distributed. The beneficiary needs to know the amount of regular contribution and conversion contribution basis in order to report any non qualified distributions on Form 8606. That make require some investigation since these amounts are typically not readily available.
Permalink Submitted by Mark Hilgenberg on Tue, 2017-10-31 20:33
Perfect, thanks Alan.